U.S. Bankruptcy Tracker: Easy Money Mutes Distress

Distressed debt investors are having a tough time finding opportunities in the U.S., where wide-open credit markets mean more companies are borrowing their way out of trouble.

Just four companies with at least $50 million of liabilities filed for bankruptcy in the U.S. last week. They included an airplane parts manufacturer and a clothing seller -- both ravaged by the pandemic.

That took the year-to-date total to 49, higher than the 10-year average of about 38, but less than the 57 filings in the corresponding period of 2020, according to data compiled by Bloomberg.

Massive government support and persistent low interest rates left distressed investment specialists rummaging for scraps. The total amount of troubled debt outstanding fell below $90 billion from almost $1 trillion at the height of the pandemic, according to data compiled by Bloomberg.

U.S. Bankruptcy Tracker: Easy Money Mutes Distress

“We came into this pandemic with so much money sitting on the sidelines,” said David W. Prager, a restructuring and financial adviser at Kroll. “That money had to go somewhere, and it’s been going to support a hope and a prayer.”

Prager expects a “comeuppance” to reveal winners and losers from the pandemic in the next six months or so as workers return to offices and the economy regains a sense of normalcy. Hotels, airlines, movie theaters, amusement parks, restaurant chains and retail all remain vulnerable, he said in an interview.

“The next large wave of filings won’t happen until the market thinks interest rates will be raised materially,” Tom Goldblatt, managing partner at Ravinia Capital said in a webinar, adding that this could take years. “It’s based on herd mentality,” he said.

As long as investors see opportunity in riskier credits, “you’ll continue to see capital markets function in a way that’ll mute the default cycle,” said Dan Guyder, a partner in law firm Allen & Overy’s bankruptcy practice.

U.S. Bankruptcy Tracker: Easy Money Mutes Distress

Felicia Perlman, co-head of the restructuring group at law firm McDermott Will & Emery, expects bankruptcy filings to pick up in the second half of the year. The numbers still won’t reach the level predicted at the start of the pandemic, she said in an interview.

Hospitals, and health care more broadly, will continue to be hurt by the virus, Perlman said. “Health care was the only industry that couldn’t shut down, but had to keep its doors open to serve communities, and had to deal with the financial impact,” she said.

More Shrinkage

The amount of traded distressed bonds and loans fell to about $89 billion as of April 9, down 3.3% week-on-week, data compiled by Bloomberg show. The amount of troubled bonds dropped 6.3% while distressed loans rose 5.8%.

Click here for a worksheet of distressed bonds and loans

There were 232 distressed bonds from 128 issuers trading as of Monday, down from 243 and 133, respectively, in the prior week, according to Trace data.

Diamond Sports Group LLC had the most distressed debt of issuers that hadn’t filed for bankruptcy as of April 9, Bloomberg data show. Its parent company, Sinclair Broadcast Group Inc., said in a March filing that it expects Diamond to have enough cash for the next 12 months if the pandemic doesn’t get worse.

Top 5 Distressed IssuersDebt ($B)
Diamond Sports Group LLC8.0
Transocean Inc4.2
Lightstone Holdco2.0
AMC Entertainment Holdings Inc1.7
Nabors Industries Inc1.5

Click here for more news on distressed debt and bankruptcy. First Word is curated by Bloomberg editors to give you actionable news from Bloomberg and select sources, including Dow Jones and Twitter. First Word can be customized to your Worksheet, sectors, geography or other criteria by clicking into Actions on the toolbar or hitting the HELP key for assistance.

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